AS-AD model Flashcards

1
Q

Output fluctuations are movements in output around its trend, what are these sometimes called?

A

Business cycles

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2
Q

Exogenous changes in AS or AD are called …….

A

Shocks

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3
Q

A shock that affects AS is called a

A

Supply shock

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4
Q

A shock that affects AD is called

A

A demand shock

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5
Q

A ______ is usually defined by a period in which there are two consecutive declines in real GdP

A

Recession

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6
Q

Each shock has dynamic effects. These are called the _________ of the shock

A

Propagation mechanism

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7
Q

Stabilisation policy seeks to

A

Dampen the business cycle by keeping output and employment close to their natural rate

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8
Q

What is meant by ‘the neutrality of money’?

A

An increase in the money supply has no effect on output in the medium run

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9
Q

In the aggregate demand relation, an increase in the price level causes output to decrease because of its effect on

A

The money market and subsequently investment

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10
Q

In the aggregate supply relation, the current price level depends on

A

The expected price level

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11
Q

An increase in the price of oil will cause what to happen in the medium run?

A

An increase in the unemployment rate

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12
Q

A monetary expansion will cause:

A

No change in the real wage in the medium run

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13
Q

An increase in unemployment benefits will cause

A

No change in the real wage in the medium run

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14
Q

As product markets become more competitive and the markup decreases, what will occur?

A

A decrease in the natural rate of unemployment, a decrease in the price level, a decrease in the interest rate

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15
Q

A reduction in taxes will cause:

A

An increase in consumption in the medium run

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